RHB Research has maintained its end-2026 FBM KLCI target at 1,750 points, warning that the US-Iran conflict, elevated oil prices and higher global interest rates are likely to limit the near-term upside for Malaysian equities despite supportive domestic fundamentals.
The research house identified developments in the Middle East as the biggest external uncertainty for markets, as higher energy prices could sustain inflation, keep monetary policy tighter for longer and weigh on risk-asset valuations.
Those concerns remain relevant after the US Federal Reserve raised its policy rate by 25 basis points in September to 3.75%-4.00%, while geopolitical tensions and elevated energy costs have contributed to renewed inflation concerns and higher Treasury yields.
RHB’s base case is for one further US rate increase at the December Federal Open Market Committee meeting, followed by no additional hikes in 2027, assuming inflation remains contained and geopolitical pressures ease.
The research house said global growth has nevertheless remained supported by continued investment in artificial intelligence, resilient external trade and generally constructive investor sentiment.
For Malaysia, RHB forecasts economic growth of 5.4% in 2026 and 4.9% in 2027, supported by household spending, investment and external demand.
It also sees robust domestic liquidity, supportive growth policies, the technology upcycle and positive corporate earnings momentum as key buffers for the local equity market.
Malaysia’s position as a net oil and gas exporter could also provide a relative cushion from higher energy prices, according to RHB, although prolonged geopolitical tensions would still weigh on the broader investment environment.
RHB said prevailing geopolitical and macroeconomic uncertainties are likely to keep the Malaysian market largely range-bound, limiting the scope for a sustained re-rating even as domestic fundamentals remain supportive.
The research house therefore continues to advocate a defensive core portfolio combined with a trading approach, including accumulating selected stocks on market weakness and taking profits as opportunities emerge.
Its 1,750-point year-end KLCI target is unchanged from its previous strategy view, with RHB continuing to cite robust domestic liquidity and corporate earnings as downside support while global risks constrain upside.
RHB remains Overweight on plantations, energy, oil and gas, property, construction, basic materials, technology, healthcare and transport.
It said corporate earnings will remain an important determinant of the market’s fundamental upside, while global bond yields, oil prices, monetary policy and geopolitical developments are expected to remain key drivers of investor risk appetite heading into the final quarter of 2026.
